BSP revises MOU with banks under PCA to ease compliance

BSP revises MOU with banks under PCA to ease compliance

By LEE C. CHIPONGIAN

June 3, 2011, 2:13am


MANILA, Philippines — For banks placed under prompt corrective action (PCA) for capital rehabilitation, the Bangko Sentral ng Pilipinas (BSP) has revised procedures in drafting the memorandum of understanding (MOU) for banks initiated into the PCA, also called BSP’s “ICU,” to make it easier for banks to commit to a recovery plan.

BSP Director Chichi Fonacier of the Supervision and Examination Sector, in a memo, said the standard or basic MOU provisions is being revised to “secure the commitments of banks expediently” and to “implement action plans that will restore banks’ soundness and viability.”

Banks under PCA has to bring fresh capital within three years, of which 30 percent of the required capital should be in within the first year of the PCA period.

Banks initiated into the PCA are required to submit a board-approved PCA plan within 90 days from receiving the notice from the BSP. The PCA plan, mainly, contains the banks’ proposed capital restoration plan, which should detail how they plan to infuse needed capital.

Fonacier said in the memo that the MOU must now contain remedial actions and corrective measures that will “address the specific underlying weaknesses of the bank.”

The PCA plan also includes the business improvement plan and the corporate governance reforms that the banks have to commit to before the BSP approves the rehab proposal.

Under the present system, a bank found in the early stages of distress and non-compliance with standard conditions and ratings is placed under PCA. When all options have failed, the bank is ordered closed by the BSP’s monetary body.

Based on its charter, the Philippine Deposit Insurance Corp. extends financial assistance to banks in order to protect the interest of depositors but the assistance is granted only if there is a viable rehabilitation plan, including capital recovery.

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